The Treasury plans to change the rules regarding ISA savings lost as a result of a financial firm collapse by allowing investors to reinvest without the loss of their ISA annual allowance.
As the law stands, up to £10,680 can be invested annually into an ISA - a savings product which prevents savings from being taxed. Up to £5,340 of this amount can be invested in cash or alternatively, the whole amount can be invested into an investment ISA.
The Treasury hopes to alter old rules which mean this annual allowance is counted even if funds were lost as a consequence of a folding provider. This is because rules state that investing the whole allowance into an investment ISA can only be done with one provider in any one tax year.
Under current rules, those who invest money into an investment ISA which later collapses could loose both their initial investment of up to £10,680 and the chance of investing into a tax-efficient scheme for that year.
The decision comes after the collapse of Leman Brothers of and Icesave, the online savings bank, a few years ago causing billions of pounds worth of loss to investors.
Mark Hoban, Financial Secretary to the Treasury, said:
"[The changes] will enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings," Mr Hoban said.
"They also demonstrate the government's commitment to ensure that the ISA remains a secure, accessible and tax-advantaged saving product."
The Treasury also announced that the ISA allowance will change in April 2012 from £10,680 to £11,280 inline with inflation.